Bloomberg BNA Pension & Benefits Daily
Reproduced with permission from Pension & Benefits Daily, 73 PBD (Apr. 16, 2014). Copyright 2014 by The Bureau of National Affairs, Inc.(800-372-1033) http://www.bna.com.
An investment management company and its sole executive officer are fiduciaries of a pair of retirement and pension plans under the Employee Retirement Income Security Act because they provided investment advice for a fee, the U.S. District Court for the Southern District of New York ruled (Severstal Wheeling, Inc. v. WPN Corp., S.D.N.Y., No. 1:10-cv-00954-LTS-GWG, 4/11/14).
In an April 11 opinion, the court granted partial summary judgment to the retirement plans, finding that the company and its officer provided investment advice for a fee and thus qualified as a fiduciary under Section 3(21)(A)(ii) of ERISA.
The court also found that the company breached the terms of its contract with the plans by failing to obtain a fiduciary insurance policy.
Dispute Over Fiduciary Status
Severstal Wheeling Inc. established both a retirement security plan and a pension plan for its employees. According to the court, until late 2008, both plans were funded and maintained through a trust sponsored by the WHX Corp.
WPN Corp. and its principal and sole executive officer, Ronald LaBow, had entered into an investment agreement with WHX to perform investment management services for that trust.
On Nov. 3, 2008, at WPN and LaBow's recommendation, WHX transferred some assets of the plans to another trust that was heavily invested in large-cap energy stocks. According to the plans, the second trust performed poorly in relation to the original trust and thus the transfer of plan assets constituted a violation of fiduciary duties.
In December 2008, LaBow signed an amendment to the original investment agreement which gave him and WPN primary responsibility for providing services and unrestricted management authority with respect to the investment of the plans' funds retroactive to Nov. 1, 2008.
In 2011, the court denied a motion by WPN to dismiss the plans' claims, finding that the plans had properly pled actual harm from the transfer of assets (173 PBD, 9/7/11; 38 BPR 1669, 9/13/11; 51 EBC 2153).
In 2012, the court denied a summary judgment motion from WPN, which had claimed that it hadn't assumed fiduciary status prior to the transfer (163 PBD, 8/23/12; 39 BPR 1636, 8/28/12; 54 EBC 1328).
Despite the finding in the instant decision that WPN and LaBow were fiduciaries in relation to their paid investment advice, the court denied summary judgment to the plans on their claims that WPN owed a broader fiduciary duty as an investment manager under ERISA Section 3(38). The court continued those claims for further litigation, along with claims by the plan against WHX.
The plans were represented by Cohen Milstein Sellers & Toll PLLC.